CH13 Business Law by Beatty Samuelson Abril 8th Edition

Question 1

CH13 What is consideration? (3)

Answer 1

Consideration is the inducement, price or promise
that causes a person to enter into a contract.
There must be bargain and exchange. It forms the basis for the exchange.
Both parties must get something of measurable value.

P 324

Question 2

CH13 What are the two basic elements of Consideration?

Answer 2

Value and Bargained-for exchange.

P 324

Question 3

CH13 In terms of consideration, what is value?

What does it require? (2)

Answer 3

A measurable thing of value must be exchanged to meet the consideration requirement in a contract.

Legal benefit to the promisee (person to whom the promise is made)

and legal detriment to the promisor (the person who made the promise).

P 324

Question 4

CH13 In terms of consideration, what is a bargained-for exchange?

Answer 4

The promise must induce the detriment and the detriment must induce the promise. (Olive Wendell Holmes)

The parties must bargain for whatever is being exchanged.

Consideration involved reciprocity.

P 324

Question 5

CH13 What is a person doing when they do something they are not legally required to do in the first place?

Answer 5

An act.

P 325

Question 6

CH13 What is the opposite of an act?

Answer 6

Forbearance. When a person agrees not to do something they have a legal right to do.

P 325

Question 7

CH13 Does a promise to forbear count as consideration?

Answer 7

Yes.

P 325

Question 8

CH13 What is a bargained-for exchange?

Answer 8

The parties must bargain for consideration.

Sought by the promisor and given by the promisee in exchange for their promises.

p 327

Question 9

CH13 What are the three basic exceptions to the rule of consideration?

Answer 9

Illusory promises
Preexisting duties
Past consideration

P 328

Question 10

CH13 What is an Illusory Promise?

Answer 10

Saying you will buy something if you like it is not consideration. It is an illusory promise.

There is no contract.

Neither party can enforce the deal.

P 328

Question 11

CH13 What is an output contract?

Answer 11

An output contract is a contract based on what you can produce. You agree to sell 100% of your output to one buyer.

P 328

Question 12

CH13 What is a requirements contract?

Answer 12

In a requirements contract the buyer agrees to purchase 100 percent of the goods from one seller. The seller agrees to sell the buyer whatever quantity she reasonably needs.

P 328-9

Question 13

CH13 requirements and output contracts in general are found to be illusory and do not offer consideration. What acknowledges these contracts and with what limitation?

Answer 13

The UCC code Section 2-306 output and requirements contracts in the sale of goods.

The output and requirements may occur in good faith.

P 329

Question 14

CH13 What is preexisting duty?

Answer 14

If someone provides a service that he or she is already obligated to do, an act required for the completion of the agreed upon service has a preexisting duty.

P 331

Question 15

CH13 Name two exceptions to preexisting duty and their conditions.

How does the UCC change the common law here?

Answer 15

Exception: Additional Work. If you agree to do something above and beyond what you are obligated to do, your promise is generally valid consideration.

Exception: Modification. Under common law additional consideration is necessary for a modification of contract terms. The one party would otherwise be getting something more while the other did not.

UCC 2-209: An agreement modifying a contract within this Article needs no consideration to be binding.

                 A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded. 

P 332

Question 16

CH13 What does rescind mean?

Answer 16

To rescind means to cancel.

P 332

Question 17

CH13 Can a completed act be the basis for consideration? (Past consideration)

Answer 17

No.

Consideration for work already done is unenforceable.

P 333

Question 18

CH13 Explain the exception: Unforeseen Circumstances.

Answer 18

When unforeseen circumstances cause a party to make a promise regarding an unfinished project, that promise is generally valid consideration.

See case bottom of page 332 top of page 333

Question 19

CH13 Explain Exception: Parties Agree in Advance.

Answer 19

If you perform before agreeing to terms, there is no consideration.

P 334.

Question 20

CH13 Explain: Promissory Estoppel.

Answer 20

(See CH11) Promissory estoppel is a theory courts use to enforce promises that are not contracts. The defendant makes a promise that the plaintiff relied on and enforcement will lead to justice.

P 334

Question 21

CH13 What is liquidated debt?

Answer 21

Where there is no dispute about the amount owed, and must be paid 100 cents on the dollar.

P 334

Question 22

CH13 Explain the exception: Different performance.

Answer 22

If the debtor offers different performance (for example paying by other means, such as an exchange of a material thing rather than money) to settle the liquidated debt, and the creditor agrees to take it as full settlement, the agreement is binding.

P 335

Question 23

CH13 Explain Unliquidated debt: Accord and Satisfaction.

Answer 23

Unliquidated debt: 1 ) the parties dispute whether any money is owed or 2 ) the parties agree that some money is owed but dispute how much. The parties may enter into an agreement to settle for less than what the creditor demands.
The agreement is called an accord and satisfaction.

P 335

Question 24

CH13 What is the criteria for an Accord and Satisfaction?

Answer 24

The debt is unliquidated.

The parties agree that the creditor will accept as full payment a sum less than claimed.

The debtor pays the amount agreed upon. The lender cashes the check and enters the agreement.

P 335

Question 25

CH13 What are the two UCC exceptions to accord and satisfaction?

Answer 25

1 ) concerns organizations which typically are businesses. If the business specifies a person to whom a payment must be made, and payment is made elsewhere in the business, accord and satisfaction is not met.

2 ) if accord and satisfaction are met accidentally, the amount paid can be paid back to the person who made the payment within 90 days and reverse the accord and satisfaction.

P 336-337

Question 26

CH13 Non Compete Agreements - What consideration does an employee receive for signing a covenant not to compete once they have started to work?

Answer 26

The law varies state to state.

Majority view: it is that an implied promise to continue employment is enough consideration to validate a non-compet

P 337

Question 27

CH13 Moral Consideration: Why would the court rule in favor of moral consideration?

Answer 27

The court views the obligation to be one of moral rather than legal nature.

P 337

Question 28

CH13 Moral Consideration - What is the majority rule and what is the minority rule?

Answer 28

Mills v Wyman is the majority rule - Mills nursed Wyman during sickness, parents said they would repay costs but never did. The court sided with the parents, moral obligation does not constitute consideration.

Webb v. McGowin is the minority rule - Webb saved McGowan’s life, Webb was disabled from this, McGowan promised payments for rest of Webb’s life but eventually stopped payments. The court found moral consideration because McGowan received material benefit. Webb was entitled the payments to avoid substantial injustice.

P 338

Question 29

CH13 Act, Forbearance or Promise. What are these?

Answer 29

The item of value in an agreement with consideration. The benefit does not have to be material.

P 339

Question 30

CH13 What is the peppercorn rule?

Answer 30

A court will not make sure there is “enough” consideration.

P 339